FIRB approves Foster’s takeover

SABMiller has cleared the final regulatory hurdle for its $12.3 billion acquisition of
Foster’s Group
, a week before shareholders of Australia’s biggest brewer meet to vote on its sale, after agreeing to keep brewing operations in Australia.

In a statement, SABMiller said the Treasurer had, on the recommendation of the Foreign Investment Review Board (FIRB), approved its acquisition of Foster’s and the remaining half share in Pacific Beverages.

FIRB approval was widely expected although some investors had begun to get nervous in the past week that a formal decision had not been made so close to the shareholder vote.

The approval was granted based on several undertakings provided by SABMiller, which include the management of Foster’s operations remaining located in Australia, a continued investment in Foster’s iconic Australian brand portfolio and not relocating any of Foster’s existing brewing facilities offshore to produce beer for Australian domestic consumption.

“SABMiller has agreed to a number of undertakings which recognise the significance of Foster’s to our economy and to our community, and support Australian jobs," Treasurer Wayne Swan said in a statement.

SABMiller said given the local nature of Foster’s brewing business and its focus on Australian customers, the undertakings were consistent with its current intentions for the business.

The London-listed brewer said the undertakings would not affect its ability to integrate Foster’s and PacBev or to compete effectively in Australia.

SABMiller last week raised its cash takeover offer for Foster’s to $5.40 a share to make up for the loss of a 30 cents capital return after a tax ruling from Australian authorities.

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The move made no difference to the total enterprise value of the deal, including debt.

The takeover requires approval of 75 per cent of votes the December 1 meeting and has wide support from Foster’s institutional investors.

SABMiller expects its biggest ever takeover deal to close by the end of the year and put it at the head of the Australian beer market with a near-50 per cent share.

Growth in sales is expected to slow in 2011-12 as competition intensifies and the battle for market share depresses prices and margins.

Traditional brewers are also under increasing competition from smaller craft brewers in a local alcohol market expected to be worth around $30 billion by 2016.

The Fosters deal is part of SABMiller’s strategy of creating an attractive global spread of businesses to add to operations largely in the emerging markets of Africa, Latin America, Asia and Eastern Europe, but also in the United States.

The London-based brewer of Peroni, Miller Lite and Grolsch launched its initial bid for Foster’s at $4.90 a share, on June 21 and then went hostile by taking the offer direct to shareholders at the same price on August 17, but Foster’s rejected both as being too low..

Peace broke out in the acrimonious battle after SABMiller offered to raise its cash bid to $5.10, and Foster’s shareholders would get the capital return and keep Foster’s final dividend of 13.25 cents.

Foster’s has been struggling with declining volumes as demand for traditional beers falls, and its market share has fallen to 50 per cent from 55 per cent.

Foster’s has retreated back into Australia, giving up its global beer empire and split its wine business in May, paving the way for a sale of the beer business that boasts one of the industry’s highest profit margins.

Shares in Foster’s traded at $5.38, reflecting expectations the deal will complete before year end.